Today we take a short look at a certain priority interest rate to get a small context for where we stand today. It is always useful to know what came before so you can better guess what is coming.
Almost everyone knows that mortgage rates hit lower record low in 2021. But do you know how mortgage rates were in the early 1900s?
The 30-year-old fasting an average of 2.65% during the week ending on January 7, 2021, its lowest point in history.
Later that year, the 15-year-old fasting hit the lowest point ever and sinked to 2.10% during the week ending on July 29, 2021.
Some lucky homeowners were able to hang interest rates below 2% in the next 15 to 30 years!
Freddie Mac’s statistics for the mortgagee started in 1971
- Most Priority Rent Statistics are tied to Freddie Mac’s Archive
- Unfortunately it only goes back to the year 1971, which is not much to continue
- I would drill a little deeper down to see how things were before the 70s
- And see if I could find data from earlier in the 20th century to get more perspective
The figure above comes from Freddie Mac’s primary priority market survey, dating back to 1971.
For the record, back in April 1971, the first month they started tracking 30-year-old fixed priority rates, was the national average 7.31%.
It went as high as 18.45% in October 1981 and as low as 2.65% in January 2021. Of course it is quite a reach.
As you can see in the diagram, these 18% mortgage rates were pretty short -lived, just as less than 3% mortgage rates. So in the end, they can be considered outliers in the big schedule with things.
The 15-year-old fasting has only been traced by Freddie Mac since September 1991, when the average rates were on average 8.69%. In the same month the 30-year-old fixed average 9.01%.
Either way, I remember a while back when fixed rates were in the low range of 4%, which the media was going on about how the rates had not been so low since the 1950s.
Which made me wonder; Where did they even deduct the historic mortgage data data?
I never really took the time to see how low prices were then, but I finally decided to do something by digging to get some more information.
A little bit of mortgage history
- The story of mortgage loan extends almost a century
- But the best items only go back to the early 1970s
- The 30-year-old fasting gained in popularity around the 1950s
- And the rates reached a low around 1945 before they hit new low powers in 2021
My quest to find a deeper priority rate story brought me to several out-of-print volumes from the National Bureau of Economic Research, which seems to have the best items out there.
Unfortunately, the details are still quite cloudy at best. You see, at that time there were different types of mortgage loans, not like the ones we use today.
Although I do not know when the very first 30-year-old fixed priority loan was created and issued (someone tell me), they were believed to be widespread in the 1950s, which is why media references that decade.
Before that time, it was common for devices such as business banks and life insurance companies to issue short -term balloon loans.
These mortgage loans often contained loan conditions as short as three to five years, which would be continuously refinanced and never paid.
These loans were also signed in the LTV ratio of about 50%, which means it was pretty difficult to get a home loan without a significant payment. In other words, home ownership was reserved for the wealthy!
Later, when the big depression hit, housing prices and scores of forced auctions flooded the housing market because no one could afford to make large payments on their priority loans, especially if they did not have jobs.
Then came FDR’s New Deal, which included Home Owners’ Loan Corporation (Holc) and the National Housing Act of 1934, both of which aimed to make homes more affordable.
Holc, created in 1933, could explain why long -term fixed -rate mortgage loans exist today.
The purpose of Holc was to refinance the old balloon loans to long -term, fully amortized loans with terms that typically range from 20 to 25 years. Not far away from the 30-year-old fasting we enjoy today.
In a way, it reminds me of the Home Affordable Refinance Program (Harp) that lower mortgage rates for millions of homeowners during the big financial crisis (GFC).
Seems some things never change, despite the fact that we think it’s different this time …
The mortgage rates fell as the loan terms and LTVs increased
- Home Ownership became more affordable over time thanks to three most important things:
- Lower interest rates
- Longer loan terms
- And higher LTVs (payments downwards))
In 1934, FHA and Federal Savings and Loan Insurance Corporation (FSLIC) were established, and in 1938 Fannie Mae was born.
All of these units expanded essentially credit access and led to more liberal lending standards for home buyers.
Over time, the mortgage rates fell down, while LTV conditions and loan conditions increased, as you can see from the charts below.
This made home ownership more accessible to everyone, not just those with the ability to bring a massive payment to the table.
Historic Mortgage Credit at the beginning of the 20th century
Although it is difficult to get a comparison of apples-to-over-mortgage rates before the advent of the 30-year-old fasting, the National Bureau of Economic Research has a diagram describing rates from 1920 to 1956.
From about 1920 to 1934 average conventional mortgage rates on average close to 6%and then began to fall to a low point of just under 4.5%.
This is probably the reference point that the media used when they said the rates had not been so low in 60 years (back when they fell in the early 2010s).
Mortgage rates in the 1920s to 1950s
- We see a stable fall in interest rates from about 1935 to 1945
- Then a bottom began for a few years before the rates began their rise to as high as 18% in the early 1980s
- Perhaps as a result of the end of the World War II and all the affiliated government debt and inflation that came with it
- Aggravated by another inflation round related to oil embargo that increased input costs for businesses
However, it is unclear what types of priority loans were over this comprehensive period and when the 30-year-old actually fixed the standard. But it gives a little bit of context.
The good news is because the mortgage rates went less than 3% in the early 2020s, we can probably consider them the lowest on the record, despite what happened in the early 20th century.
If we are only included in Freddie Mac’s data since 1971, the 30-year-old fixed has average average 7.75% During that period.
But it includes some very high years in the 1970s and 1980s and some very low years in the 2010s and 2020s.
Many people like to refer to prices today as normal priority rates, but that doesn’t mean they’re not much higher than they used to be.
In fact, they tripled almost from 2021 to 2023 from 2.75% to 8%, so usually a relative expression is at best.
Since 1990, the 30-year-old Fixed has been closer to 6%on average, partly thanks to the low prices seen in the last decade.
So maybe mortgage rates are closer to their long -term average today in the high 6s. But without home prices and/or higher wages will afford affordable prices historically low, which is why the sale of the home has fallen.
Before creating this site, I worked as a banking director of a wholesale loan in Los Angeles. My practical experience in the early 2000s inspired me to start writing about mortgage loans 19 years ago to help potential (and existing) home buyers better navigate the home loan process. Follow me on x for hot take.